MUMBAI, INDIA: For the past few weeks, the US financial sector has been dealing with a huge economical crisis that has ripped through world markets, including India.

The Wall Street, a symbol of booming economy and prosperity, has tumbled down like ninepins and brought the nation to face its worst monetary crisis since the ‘Great Recession’ of 1930s.

In last two years or so, the US economy has showed major signs of weak growth mainly because of sub-prime effect, bad debts, recoveries and the excess housing mortgage that finally took its toll on the BFSI including the investment banking majors. ‘No Income, No Jobs and No Assets’ (NINJA) loans are considered the key culprits to this crisis.

Wall Street tumbled down like an unstoppable avalanche that brought some of the oldest and biggest financial institutions, investment banks and insurance company near to its extinction like Lehman Brothers, AIG, Merrill Lynch, Freddie Mac, Fannie Mae, Bear Stearns, Washington Mutual and Wachovia.

Looking at the ongoing crisis and its magnitude, many financial analysts predict more companies to join the list of bankrupt firms in future.

Some monetary firms were blessed enough as the US government rescued them with the $700 billion bailout plan. While some companies would consider itself lucky to find buyers, the ones that were not so fortunate were labeled bankrupts. 

Whatever may be the rescue plans, the turmoil has already impacted the US economy in a way of job loss, in debt and default firms, and global slow down of businesses.

According to the US government data, about 159,000 jobs were lost in September alone, while in August about 73,000 jobs were gone. It indicates the deteriorating US economy and its repercussions over other world economies in the new age of globalization.

This onslaught has pulled the strings of Indian stock market along with the BPO sector in financial process services.

The BPO sector offering financial process services is heavily dependent on the US financial sector for its work and revenues. Unfortunately, top BPO firms like Wipro, i-Flex, Genpect and Patni refused to comment on the same.

“In short term it’s a loss of business for Indian BPOs in the financial service segment. In long term they will have to focus more,” said C Praveen Kumar, CEO and CIO, Titan International – a Mumbai based KPO.

“Companies dependent on US market will be highly affected because of the present crisis and have to look beyond US. They will have to turn to Asia and ASEAN markets."

According to Dushyant Joshi, CEO, Azure Knowledge Corporation – a leading BPO in Gujarat, the ongoing US financial crisis will offer a bigger opportunity for the Indian BPO sector for next 2-3 years.

“Cost cutting factor will come into play than ever before and hence business processing will get a major boost. Looking at the complexity of crisis it will have a cascading effect on banking, financial services, insurance, commodities, price indexing and other segments. And so these mid-businesses will looking towards outsourcing and BPOs for cheap services,” explained Joshi.

Azure’s 30 per cent business comes from the US and last year the company acquired a US firm, Citizens Financial Mortgage. This acquisition has offered Azure a front-end platform for business within the US market, he said.

Overall, the industry holds mixed views on this issue, but the latest study of Everest Research Institute can help to pore in a positive and optimistic view for the Indian BPOs.

“Financial firms will offshore more jobs in the wake of economic crisis. BPO from the financial services sector has the potential to increase 40-45 times the current market size over the next five years, with key drivers of growth coming from cost pressures and the timely advent of more vertical-specific offerings by offshore suppliers,” the study predicts.

According to Nikhil Rajpal, principal, Everest Group, for FY08, about 50 per cent of the Indian BPO market revenues of US$10.9 billion i.e., US$5.45 billion was derived from banking, capital markets and insurance sector.

For the same period (FY08), Everest estimates that approximately 40-50 per cent of the total 704,000 headcount of India BPO is engaged in serving financial services clients, he added.

“In the short-term, the financial crisis is likely to result in delayed decision-making as buyers wait for the uncertain period to tide over. There clearly will be an impact on Indian BPO companies in the short term as the US market deals with bank closures and job losses,” explained Jimit Arora, research director, Everest Research Institute.

Arora reckoned that the case for off shoring is strong and the market should see strong growth in the medium to long term.

“The environment in the short-term can be challenging for suppliers. Future success in the financial services industry will depend on the ability to drive game-changing strategies that create ‘win-win’ solutions where buyers can overcome their extreme profit pressures, and suppliers can sustain growth and profitability,” he concluded.

At this time when the world economies are coping and restructuring its businesses to meet the financial turmoil, last December, on broadcast show on America’s ABC network, Alan Greenspan, the ex-chairman, US Federal Reserves and Stephen Roach, chairman, Morgan Stanley had predicted that US will mostly likely fall into recession next year.

“Recession is a 50 percent chance,” Dr. Green said during the show, while Roach went one step ahead to point an even greater risk, “The US is going into recession. They have a lot more work to do. They could cut their policy short-term interest rate by one to 1.5 per cent points over the next nine to 12 months.”